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Despite Mortgage Rebound, Low Credit Buyers Absent

by Tom Walsh

The housing market continues to struggle despite an increase in high-quality mortgages

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Even though houses are selling at their fastest rate since 2007, sub-700 credit score buyers are still at the same level they were mid-2010.

According to a report by The Wall Street Journal, an average of 10,000 homes are sold to buyers with credit scores under 700, compared to a massive surge in buyers above a 700 credit score, who peaked at over 50,000 homes bought just a few months prior. In an CNBC interview with Ben Graboske, the senior vice president of Black Knight Financial Services’s data and analytics division, he touted the growth in mortgages despite credit scores.

“Sure, regulatory changes have tightened the credit box,” Graboske said, “but as the result has been the best-performing mortgages we’ve ever seen, that’s inarguably a good thing.”

Unfortunately, it’s not as simple as more mortgages equals better housing market, given where those mortgages are going.

Sub-700 Credit Buyers: MIA

The recession lead to extremely tight restrictions on how easily banks lent money for mortgages, something that’s been slow to improve since the recession started, despite defaults no longer being a large risk to banks. Only recently have banks started to ease their lending standards, including Fannie Mae offering alternative methods for banks to judge borrowers’ ability to pay back a loan in order for them to lend to those who have low or no credit scores.

With the increasing focus on luxury housing developments due to rising costs (especially labor and lumber), it’s no surprise that more and more buyers with better credit scores are purchasing more expensive homes. Where does that leave those with lower credit scores, who might not have the ability to afford the higher priced homes

For those with low credit scores, there are many obstacles in their way. Renters continue to struggle, with a third being cost burdened by the rent they are paying, meaning that renters have to stretch thinner, spend less and save less as well. Considering that 62 percent of Americans have inadequate savings, this makes actually affording a house both as prices continue to skyrocket, and amid a bottomed out quality supply very difficult.

FHA Struggles to Make Dent in Low Income Affordability

There has been many attempts to make it easier for buyers with low credit scores to purchase homes, however, many factors block much progress being made.

This has been seen with the Federal Housing Administration’s multiple attempts to provide easier mortgage access for those with poor credit scores. The biggest example of this has been the FHA’s attempt to lower insurance premiums, which instead stimulated demand without creating supply, raising prices further.

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